The Secrets I Learned from Jesse Livermore
October 19, 2012 at 8:30 AM | written by Gatis Roze

When seasoned traders get together, we have a sort of “secret handshake” that the uninitiated may not notice. We ask each other if they’ve read Reminiscences of a Stock Operator. The insiders reply by telling you the number of times they’ve read the book. Novices ask for the author’s name.

Recently, I’ve been rereading Jon Markman’s wonderful annotated version of this Jesse Livermore classic. This special edition even has a forward written by Paul Tudor Jones. As I revisited Mr. Livermore’s wisdom, I realized that so much of the trading baton that I’ve endeavored to pass on to my readers is directly or indirectly the result of the special batons he passed on to me. In considering this, I feel it’s only appropriate to salute the man. Afterall, I have patterned myself after him and my favorite quotes come from this truly extraordinary trader. As Dr. George Lane, the creator of the stochastic oscillator, once told me over dinner, “Gatis, you can never get enough of that good stuff.”

My trading approach is organized into 10 stages that I call Tensile Trading. For this week’s blog, I’ve chosen a few of my favorite Jesse Livermore quotes for each of these 10 stages.

1. Money Management:
* “I trade on my own information and follow my own methods.”
* “The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street, even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”
2. Business of Investing:
* “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street. As long as they realize the market is a business like any other business, they have a good chance to prosper.”

3. The Investor Self:
* “My satisfaction always came from beating the market, solving the puzzle. The money was the reward, but it was not the main reason I loved the market. The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me. It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history. For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…”

4. Market Analysis:
* “What beat me was not having the brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favored my play.”
* “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.”

5. Routines:
* “It is what people actually did in the stock market that counted – not what they said they were going to do.”
* “The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”

6. Stalking:
* “In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be. The thing to do is to watch the market, read the tape to determine the limits of the get nowhere prices, and make up your mind that you will not take an interest until the prices break through the limit in either direction.”

7. Buying:
* “It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.”

8. Monitoring:
* “After spending many years in Wall Street and after making and losing millions of dollars, I want to tell you this: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!”

9. Selling:
* “Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.”
* "Experience has proved to me that real money made in speculating has been in commitments in a stock or commodity showing a profit right from the start.”

10. Review & Adjust:
*“The only way you get a real education in the market is to invest cash, track your trade, and study your mistakes…. The examination of a losing trade is tortuous but necessary to ensure that it will not happen again.”

The bottom line: In the markets, everywhere you turn, there exist opportunities of one flavor or another. As an investor, you are compensated – very handsomely, I might add – for making the right choices both monetarily and emotionally. Jesse Livermore regularly reminds me of this reality, and I’ve been grateful for his mentorship in this arena over a very long time.